Since January 1, 2021, the United Kingdom has also been a third country from a VAT perspective. This has implications for various areas of German-British business transactions.
Trade-in goods
When the transitional period expires on December 31, 2020, deliveries of goods to the United Kingdom will no longer be intra-Community deliveries, but export deliveries. Deliveries from the United Kingdom to the EU are generally subject to import VAT.
Import VAT in the UK is currently 20 percent.
Deliveries of goods to Northern Ireland remain intra-Community deliveries even after the transitional period has expired.
Shipments of low-value goods since January 1, 2021
According to a U.K. government policy paper that deals primarily with shipments of low-value goods, VAT will be.
For shipments of goods from abroad that have a value of up to 135 pounds sterling, VAT will not be charged at importation but only at the "point of sale."
For sales of goods in B2C business, the foreign seller must register in the UK and account for UK VAT.
This does not apply if the sale is made via an online platform. In this case, the obligation to register for VAT and account for UK VAT rests with the platform provider.
Services to businesses
Since 2010, VAT on the provision of cross-border services has been based on the place-of-receipt principle. This means that services provided to businesses are taxable at the place where the recipient of the service is based or at the place of the permanent establishment for which it is provided.
Within the EU, the reverse charge procedure applies, according to which the tax liability is shifted to the recipient of the service. This prevents the service provider from having to register for VAT in other EU countries.
The reverse charge principle will remain in place even after the UK leaves the EU.
However, the prerequisite for this is that it can be proven that the British customer is a company. Until now, this could be proven by means of the British VAT ID. Since January 1, this is no longer recognized by the German tax authorities as proof of entrepreneurial status.
Accordingly, you need other proof of the entrepreneurial status of your British customer. This is usually the so-called "Certificate of Residence", which your customer applies for at his tax office.
On the British tax authority HMRC there is also the possibility to check the VAT-ID of the British customer and thus the entrepreneurial status.
Services to non-businesses
If services are provided to a private individual, the tax liability generally lies with the service provider. This means that a German company providing a service to a private individual in the UK will issue the invoice with German VAT and will not have to register for VAT in the UK.
Digital and telecommunication services to private customers
Digital and telecommunications services to private individuals are already taxable in the country in which they are provided. Within the EU, there is a simplified and centralized procedure for this, known as the "mini-one-stop-shop" procedure, so that companies providing digital services in several EU countries do not have to register individually in each country, but rather through a central portal operated by the Federal Central Tax Office. This simplification no longer applies to the United Kingdom as of January 1.
For the latest information on VAT registration for providers of digital services to private individuals, see this page from the UK government.
In contrast to the movement of goods, according to a letter from the BMF dated December 10, 2020, there are no special rules for trade in services with Northern Ireland, i.e. both the United Kingdom and Northern Ireland will become third countries upon expiry of the transitional periods with regard to the VAT treatment for services.
Input tax refund
As of March 31, 2021, applications for the refund of tax amounts paid in the United Kingdom can no longer be submitted to the German Federal Central Tax Office but must be made directly to HMRC, the UK tax authority.
The application must be submitted no later than six months after the end of the fixed twelve-month period from July 1 to June 30 of the following year.
Applications for VAT refunds for the year 2021 must therefore be received by HMRC no later than December 31, 2021.
The application must be submitted using form VAT65A. In addition, proof of entrepreneurial status is required, for which form VAT66A can be used.
For more information on UK VAT refunds, please visit the Refunds of UK VAT for businesses established outside the UK section of HMRC's website.
VAT registration
The following forms are used for VAT registration:
VAT 1 - general VAT registration form.
VAT 1A - mail order from the EU to Northern Ireland
VAT 1C - for sales generated in the UK